Club Accounting 101

Club Accounting 101

By Christine Rowe

MASNA Treasurer

Disclaimer: This article does not replace the services of a CPA, nor is MASNA trying to replace one. Please consult with or seek the advice of your club’s tax professional for additional information on all the suggestions provided here.

Introduction

One of the most commonly overlooked club functions is its accounting. In many cases it is an intimidating position to address. Who do you trust to manage the club funds? How qualified are they to do so? These are serious questions that many ask when either first starting up a club or bringing in someone to take over the position from a board member who has stepped down. Too often MASNA finds that this position has not been properly managed. Mismanaged funds or improperly recorded accounting opens the door to fraud and theft. It makes it difficult to determine how financially stable a club is to continue operating. Important tasks like not filing the proper tax returns or information returns at the end of the year could lose a club or organization it’s non-profit status. At the very least it creates a difficult tangle of information that becomes hard to unravel even for the most experienced professional. Remember that the finances of a club are what drives its ability to continue and grow. If you are able to find someone to volunteer for the Club Treasurer and they have a skilled background in accounting, then consider yourself among the fortunate few. More than likely, however, a person will volunteer for the position with no prior accounting experience. That is perfectly ok. Even though an accounting background is preferred, it isn’t needed. If the new treasurer knows how to balance a checkbook, then they can manage a club’s finances. The rest can be taught.

So where do you begin? It can be daunting coming into a club’s treasurer position with no knowledge of what has been done prior to your arrival. In most cases where a treasurer is being replaced, the prior treasurer will be there to assist you with any questions you may have. If this is a new club, a person who volunteers for the position may not know where to start. In either case, the first thing you want to do is evaluate what you have available to you. Do you have access to the prior documents? When was the last time, if ever, the bank statement has been reconciled? Is there an accounting software being used? Is there a list or set of duties that you are responsible for? Even if the answer to any of these questions is “Yes”, your best place to start is at the beginning. Organize and evaluate where the club stands concerning available funds. Determine what your responsibilities are and get a list together of what you will be providing to the club. Then you will want to prioritize the most important or pressing items that need to be taken care of now in regards to the club’s finances. But first, let’s start with a list of responsibilities or duties you will be providing to the club as the new treasurer. The following is a list of duties that most clubs will need:

General Duties:

Collect and distribute funds on behalf of the organization.

Keep a detailed list of all income and expenses for the club. This includes separating out expenses and income for special programs.

Reconcile bank statements monthly to include checking and any third party payment gateways (ex. PayPal).

Learn to budget events and special occasions that the club will host.

Prepare treasurer’s report in writing to be dated and kept to correspond with board meetings.

Prepare and file the annual tax return for the club (if applicable).

Now that you have a set of responsibilities in place, it’s time to tackle the money.

Collect and Distribute Funds on Behalf of the Organization

The first and most common responsibility of any treasurer is to collect and distribute funds on behalf of the organization. This is what the accounting world considers your income (collected funds) and expenses (funds distributed). For your income this can be anything from membership dues to event attendance or fundraisers. For expenses, this could be anything from paying annual state registration dues to paying for food and drink for meeting events. Payments issued can be done either with hand written checks, bank issued checks that are triggered through online bill payment options or with a debit card/credit card. In some cases a club may be small enough that it may not have set any of these methods up and are being operated with cash only. While this is certainly possible if managed properly, it can be inconvenient and difficult for tracking your money for the club. If this is the method that your club is using, it’s important to keep detailed documentation of the money you are spending and collecting on behalf of the club. Even so, MASNA suggests that any club created or managed use a bank account to manage their money no matter how small the club funds may be. This creates multiple levels of protection for both the club and its Treasurer. It is also important to make sure you are following the rules set out by the club’s by-laws. In some cases, payments may require the authorization of another club officer other than the Treasurer if that payment is more than a certain amount. Make sure as the Treasurer you pay close attention to the by-laws in order to maintain consistency in the organization’s books. This will also dictate to the Treasurer what may need to be done with any remaining funds that are left in the event the club or organization ceases to operate.

Recording Income and Expenses

From an accounting perspective there are two things you should be doing concerning your income and your expenses. Keep copies and make notes! It’s surprising how something so simple may be easily overlooked. The copies are for your records in the event you need to look back for information on how much items cost and how much was paid to the club. Keep in mind, this will also be your backup in the event you need to prove your club’s annual tax return information to the IRS (if it comes up). You will want to keep notes to help guide you and ‘jog’ your memory months, if not years, down the road when you need to look back on your income and expenses. If you are looking for an easily accessible location to store your documents, try an online file storage system like Google Drive to group your documents in one place. You can create folders to sort your documents by year and by type and you can create new documents with Google Docs and Google Sheets. You can email from the drive any document you need assistance with and it’s very easy to turn over permissions of the drive to the next treasurer who comes onto the board after you step down. You can even invite other members of the board to join the drive to follow along with your progress. It’s always good to have multiple people watching the club’s finances. Plus there is a free option to use with this type of online storage. It’s great for clubs that are keeping track of how much they spend.

Now that you have a place to store your receipts and documents, you will want to find a way to manage the numbers. Does your club use any type of accounting software? And if not, should you start? The type of accounting software you may have heard of are programs like Intuit Quickbooks. While the software is a fantastic resource to help organize a lot of your bookkeeping needs for the club, it can be costly and sometimes difficult to learn. In many cases for smaller clubs the software may be too much. Quickbooks offers many options. However, you don’t necessarily need complicated. Simple is often times the best. There are also free or open source software that is available for you to use, however this is one of those times where you will get what you pay for. In this case “free”’ means that it will lack a lot of features and redundancy warnings paid for program like Quickbooks might offer. If you are unfamiliar with accounting software then it would be important to remember that without a working knowledge of more complicated accounting or bookkeeping skills, then you are likely going to run into trouble by making mistakes. There is a good chance that you may not even know the mistakes were ever made. In this particular case, you won’t know what you don’t know.

Please remember, MASNA is not suggesting that an accounting software isn’t appropriate or the right fit for your club or it’s accounting. There are many benefits of using an accounting program, like generated reports that can be used to track your accounting progress, automated features like importing your banking transactions, and invoicing for membership dues and sponsors. These are all wonderful features that an accounting software can do for you. If you still think that an accounting program is right for your club, make sure you ask questions of the sales representatives concerning your possible purchase or free service. Questions may include the following:
:

Are there any non-profit discounts for the software purchase?

Can more than one person access the account at one time?

Does the software provide tutorials, webinars or teaching aids or tools to help learn how to use it?

Is there a different price structure for a subscription based software (charged every month) or a one time software purchase?

Is software support included in the purchase or is it charged separately? If it is charged separately how much is it?

Does the software automatically link to bank accounts or third party payment gateways like PayPal or Stripe? If you can find a software that automatically imports the transactions for your different type of accounts, this may greatly reduce the amount of time you may need to spend keying in transactions.

Don’t hesitate to ask questions. You want to make sure that what you choose for your club is going to be an “easy to use” software that anyone can pick up and can learn. Remember you have to think long term in setting up the ground work for your club’s accounting especially when it comes to accounting software. It is usually very difficult to move your accounting from one software to another. Its best to know all your options before hand.

If a paid for or free accounting program is too far out of your comfort zone, then don’t worry. All you need is an excel program. Setting up your income and expenses are done in what’s called a cash disbursement spreadsheet. This is a spreadsheet that will list out all your transactions (both deposits and checks written) in an easy to follow format. See below for a sample image of one, or click here to download a sample spreadsheet. Please note, the downloaded excel file has formulas embedded into the cells of the document. These are formulas used to automatically calculate columns and rows of numbers. If you are unfamiliar with how excel formulas work, please use caution when editing the document and adding columns or rows or deleting information.

So how do you know how to properly record your expenses or income? What are all those columns for?

Expenses:

For recording your expenses, it’s necessary to group them according to type. The reason it is done this way is to help you organize all your transactions of a similar type together so you can come up with one total for that category or what’s called an “account”. This applies to businesses as well as personal finances. It stands to reason that at any given time when you are tracking how much you are spending on items, there will likely be recurring transactions. How often do you buy gas for your vehicle a month? What about groceries? These two items would be something you would purchase multiple times a month. So we record the transactions grouped together according to type to determine how much was spent each month on your gas or your groceries.

For example, your club is hosting a few events later in the year. Your board has designed and had flyers printed out to give to local pet stores to promote them to the public. Your club has also gone to the grocery store and purchased food and drink to sell at the event. You would then record these purchases on a spreadsheet (like the one above) or in your accounting software and apply them to the account that best describes what they are for. The flyers printed would be grouped under the account called ‘printing’. For food and drink, you would want to put that under “Food and Entertainment”’. It’s important to group all your expenses in their proper accounts to better assist you in organizing your expenses. This also provides a better picture to use when you start budgeting for future events. While there is no ‘set in stone’ guideline to use for how you group your expenses, it’s important to be consistent in where they go and use a account that best fits what it is for. Don’t worry if there are no accounts listed that would be suitable to record your expense. You can create a new one. Just use caution when doing so. The idea here is to use a moderate number of accounts to correctly sort out your expenses. If your account list or categories become too much, then it defeats the purpose in allowing you to organize your expenses in an easy to view format. You certainly don’t want to have to scroll through hundreds of accounts to figure out which one is best. Meanwhile, don’t forget to use your notes! Make sure you note on invoices or documents when items were paid and what they are for. If you are recording these transactions in an accounting software, make sure you use empty fields to note what the purpose was for each transaction. This will help you determine where best to put items.

Income:

Recording your income can be a little tricky. For starters, you will likely just want to have one category for income. If your club starts holding events it may be a good idea at that point to add a few new categories to help split out where your income is coming from. For example, you may have income accounts set up for “raffle”, “ticket sales”, and “membership sales”. This will allow you to better understand where the bulk of your money is coming from.

As your club continues to grow you may want to start adding programs that your club will maintain and sponsor. An example of this type of program would be “scholarships”. It is very important to keep your donation income for these particular programs separated in your categories from your other income groupings. You will also want to set up a corresponding expense account to coincide with the program income for payments that your club will issue such as “scholarships awarded”.

For example, your club is creating a scholarship fund to help a club-picked student pay for their tuition on their way to earning a Marine Biology degree. You have received $2,000 in sponsorships from several different local pet stores and fish stores. You recorded those amounts in the “Scholarship” income account. Once you have selected a student to receive the club scholarship, you will need to issue a check to the student’s financial aid department on behalf of the student. You will want an account all by itself that reflects JUST the payment made on behalf of the scholarship. This is the “expense” account that mirrors the income account. The reason we must do this is because the Internal Revenue Service considers donations made specifically for a program (like the scholarship fund) as “temporarily restricted assets”. This means that the IRS expects that any money collected specifically for that program be spent ONLY on behalf of that program. Your club is not allowed to use those funds for any other purpose. In the event the money donated gets used in it’s entirety for that program, the club or organization is free to use unrestricted funds (all other non-program income) to supplement the remaining costs.

Does your club have a bank account?

If you have money changing hands regularly, it’s a good idea to go ahead and open up a bank account if there isn’t one already. Keep in mind that if the club is going to open an account in the club’s name, you will need identifying information to bring to the bank in order to do so. This may include (but isn’t limited to) a Federal ID number issued by the IRS, state corporation commission documents proving the existence of the club at the state level and identification from those who will have access to the account. If your club has been issued a Non-Profit status, then it’s probably a good idea to bring that documentation as well. Verify with the bank ahead of time what documentation you will need prior to your arrival. It’s advisable that more than one person have access to the account. This provides a level of protection to prevent potential fraud or theft. It’s always a good idea to have more than one set of eyes on the money. Remember that you only want individuals who will have check signing authority on your account. MASNA suggests that you limit your access to no more than three individuals. For example, you would probably have the President, Vice President and Treasurer on the account. Verify with your club or organization’s by-laws to make sure that this isn’t in violation with club rules. Look at different banks and determine which account set up would be right for your organization. Don’t be afraid to ask questions. It’s better to know all your options before jumping on board and getting an account set up that eventually won’t work in the club’s favor. Also, check to see how difficult it is to change names of those in charge of the account. Board members may rotate out, and it’s always better to have an idea of what to expect in the future in the event you need to change the information on file for who has access to the account.

If the club already has a bank account set up, great! Next, and probably the most important thing a treasurer can do in their responsibilities to the club, is keep track of and reconcile the monthly bank statements. This is crucial to maintaining proper accounting for your club. It is often overlooked and very rarely used. However, it is an excellent means to determining if there any discrepancies in the account, look for unusual charges that may have posted to the account and keep track of your income and expenses to then check against the cash disbursements documents or accounting software you are using. This also provides the necessary backup to allow at any time in the future the ability to recreate the accounting history for the club’s finances. This would be for circumstances such as accounting software getting accidentally deleted or your excel spreadsheets becoming corrupted or lost. Backup is always a good thing!

Creating a Profit and Loss Statement

While the ultimate goal of any club is to educate and network it’s members, the club won’t be able to accomplish this unless it continues to grow its finances. What you are looking for is a profit and loss statement. Basically it is exactly what it says. Does your club, in any given time period, have a profit or a loss after all income and revenue is deposited and all bills or expenses are paid? It’s easy enough to set up such a statement and it can be used in many aspects of your club finances.

Do you remember those categories we set up to group together your various income and expense transactions? These would have been items like “Memberships” and “Raffle” for income, and “Office Expenses” or “Printing” for checks or debit card charges you paid out. This is where those categories are going to really help you organize your income and expenses and give you an overall picture that was mentioned earlier in the article. The following is an example of a profit and loss statement:

Or you can find a sample profit and loss statement here. Your net profit or loss is determined by taking your total revenue and subtracting your expenses. Either you will have a positive number (profit) or a negative number (loss). Of course in any set of circumstances, your goal is to make a profit for your club. If you aren’t making a profit and have, in fact, a loss on your statement, then it’s time to start looking at where your income and expense issues are. This report will help you pinpoint where you may be spending too much on certain items for your organization. It may point out that you have a lower than expected income for any given period. Once you determine where your weak points are in your income and expenses, you will be able to better tackle your problems and work to fixing your bottom line.

The overall use of this statement is endless. You can use this for specific events the club will put on, the club’s monthly income and expenses, quarterly income and expenses or yearly income and expenses. If you really want to get creative, you can have multiple columns of income and expenses to compare a prior period to the same period you are currently working on! It’s a great tool to use to get an overall view how your event or club is making or losing money. This will help you budget and plan for future events and keep your club going strong.

Budgeting Your Club’s Finances

To budget…or not to budget? A budget for your club or organization is not unlike one you may use to track your personal income and expenses at home. You are projecting what your income and expenses will be in the next month or 6 months from now or even as far out as a year or more. It is important to always remember that a budget is a moving target. It’s not intended to be an exact idea of where you are for your bottom line. That is what a profit and loss statement is for. A budget is to take your profit and loss statement and anticipate what the numbers will be in the near or distant future. Don’t get disappointed if at first your budget is off considerably. While it’s always good to come in under budget rather than over, there are instances where unforeseeable expenses or lower than anticipated income may change those numbers drastically. It takes time and a variety of historical data from prior year(s) profit and loss statements for your club or its events to get a good feeling on where your projection will wind up. Below is a sample of what a budget might consist of for a club event:

Or find a sample budget here. In case you were wondering, the budget looks very much like the profit and loss statement that was discussed earlier in the article. The difference between this and the earlier profit and loss statement is in the projected column. What you are looking for are the final numbers from a point of time in your club’s history (this will either be an event or a period of time such as a month, quarter or year) and estimate or “project” what the next event or period numbers will look like. Remember to budget reasonably. Look at all your income and expenses carefully, and ask yourself hard questions. Are you expecting more or less members renewing in the next year? If you are holding another event, has the venue changed or does it cost more money than before? Has the cost of office supplies gone up or do you require more supplies than the year before? There are lots of factors to consider when estimating the numbers. That’s ok. Budgeting takes a little practice to get it sorted out to where you need your numbers to be. It helps to have several years worth of numbers to help you average your costs better. You are looking for future totals and you will learn to adjust as needed. In the end, your goal is to come in under budget rather than over.

Treasurer’s Report

A treasurer’s report is a necessary tool to provide club members an idea of exactly where the club stands with its finances. It’s important to be open about where and how the money is being used to manage the club’s activities. Many club members feel better about spending their money for membership dues if they know that the funds are being used to support a transparent organization. A good treasurer’s report should include a current cash balance for all accounts the club has, all current expenses outstanding, and all future expenses anticipated. The treasurer’s report should also include any anticipated revenue coming in, and should close with an estimated ending balance. The following is a sample of an effective format that can be used for any club treasurer’s report.

Or you can find a sample here. It is always a good idea to have a new treasurer’s report for each meeting instead of copying over the existing one. This provides you the ability to refer back to items that are reported on at previous meetings if need be. Your should start with the total sum of your cash accounts, less any new expenses you have issued or will issue and add to that the new or estimated income you will receive. That should give you your new ending cash balance.

Be prepared to answer questions about the upcoming check or payments issued, what has currently cleared the bank, and details about upcoming income. Use this to take down notes of concerning questions that any of the board members or regular members may have. This will give you the opportunity to create a followup list of items that need to be addressed or taken care of before the next board meeting. Follow up with emails or conversations at the next board meeting to address those questions or concerns. Your board and club members will thank you for it!

Filing your organization’s annual tax return

The dreaded Internal Revenue Service. One of the most feared agencies in the United States. Don’t worry though, because preparing and filing your year end tax return for your club or non-profit is not as awful as it sounds. If your club is classified as a non-profit then your organization is required to file an annual income tax return to the government. In most cases, the organization is small enough that a form 990N (or 990 Postcard) is all that is needed. It is designated for clubs with $50,000 or less in total revenue for the year. The form is only a series of questions and can be answered by anyone with knowledge of the club’s finances for the year. Remember that someone who has authority to sign on behalf of the club should be filing this return. It is a Federal document, and only club authorized individuals should complete one.

If your club has over $50,000 a year for a consecutive three years, then it may be required to file a Form 990EZ. It would be best if the club seeks the services of a paid tax preparer with knowledge of non-profit tax returns in order to prepare the return. As with anything the government does, the “EZ” form is far from easy. Remember, if you have been keeping up with your income and expenses for the year in either a cash disbursement spreadsheet or accounting software, then your new accountant will love you for it. Please note that any income tax return for a non profit organization must be efiled by the 15th day of the 5th month after the organization’s year end date. In most cases, the return is due May 15th after a December 31st year end. Verify on your filing status with the IRS to determine your due date. If your organization is a for profit entity then filing dates will depend on the elected status of the organization and your designated year end.

For state returns on a non-profit or for profit organization, you will need to verify with your specific state as to the rules regarding filing organization’s return. It varies depending on what state your club is located.

How long should our club or organization keep all of our financials documents?

You may be asking at this point what you should do with all these documents? How long should you keep them in your records? You’ve spent a considerable amount of time compiling all these documents, including tax returns, treasurer reports, payments and invoices. Now what do you do with them?

The IRS has guidelines concerning how long you should keep your financial records. We would advise you to err on the side of caution here and consider keeping some items longer than others. The beauty of using an online file storage provider like Google Drive is that it gives you plenty of space to keep this information as long as you need. Even so, there needs to be some sort of “retention period” in place to maintain your financial records. Below is the “rule of thumb” in regards to record retention:

Keep Permanently

Federal ID Documentation – issued by the IRS.

Corporate Records and By-Laws including any dated amendments-your club Secretary should be responsible for this.

State Corporation Commission documents – your club Secretary should be responsible for this.

Federal and/or state tax return – this must include confirmation of submission of your 990N as there is typically no “printed return” to show when filing online through the IRS website.

Federal and/or state information returns – Form 1099 and 1096 and Form W-2 and W-3.

Interim & Year End Financial statements-prepared internally-this would include your profit and loss statement. Please note that these statements also include a balance sheet and a cash flow statement which is best prepared by an accountant or generated out of accounting software.

Chart of Accounts-these are your categories you set up for your cash disbursement sheet.

Seven Years

Bank statements and reconciliations

Cash Receipts and disbursements

Petty cash vouchers (if applicable)

Invoices to customers

Paid bills and/or receipts

We weren’t kidding when we said for you to keep copies and make notes! Again, we want to stress that this is the standard “rule of thumb” in regards to keeping your club or organization’s financial documents. This provides your organization with several layers of added security and functionality. Not only that, but it provides a clear paper trail that new board members coming onto the board can follow and provides the current and any future treasurers the tools necessary to continue keeping the club moving in the right direction financially.

Where do you see your club in 10 years?

More and more people today find themselves concerned about where their money is going. They want to know that their sponsorships and donations are being used to benefit the bigger picture, and are being managed responsibly. Too often you hear of large non-profits where their expenses are ridiculously high and their charitable work is unreasonably low. A club’s board of directors works hard to build an organization and have in place a network of fantastic and passionate people who love what your club goals are and what your club is doing for the community, both locally and around the globe. However, this is hard to do if people are suspicious of your club’s intentions and are unaware of where and how their money is being used. Transparency, in MASNA’s opinion, is a good thing to have in a club. We encourage you to share with the members where your club is financially. Your members are trusting you and your club with their hard earned dollars. That is a huge responsibility that shouldn’t be taken lightly. Grow and manage a healthy successful club or organization that will promote education and awareness of this fantastic hobby that both MASNA and you care so much about.